THIRD QUARTER 2014 EARNINGS REPORT
THIRD QUARTER 2014 EARNINGS REPORT Mexico City, October 28, 2014 – Terrafina (“TERRA”) (BMV: TERRA13), a leading Mexican industrial real estate investment trust (“FIBRA”), externally advised by Pramerica Real Estate Investors and dedicated to the acquisition, development, lease and management of industrial real estate properties in Mexico, today announced its third quarter 2014 earnings results.
The figures in this report have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Figures presented in this report are presented in millions of Mexican pesos and millions of U.S. dollars unless otherwise stated. Additionally, figures can vary due to rounding. Terrafina’s financial results included in this report are unaudited; as a result, the figures used throughout this report could present adjustments in the future. Terrafina’s 3Q14 reports financial results for the third quarter of 2014 (3Q14) comprise the period of July 1, 2014 through September 30, 2014. It is important to consider that comparisons in this earnings report are made to second quarter 2014 numbers since third quarter 2013 results do not include the effects of the American Industries – Kimco acquisition.
Financial and Operational Highlights as of September 30, 2014
Operational
• Occupancy rate at September 30, 2014, was 91.4%, a 24 basis points increase compared to 2Q14. Additionally, considering the signed letters of intent, occupancy was 92.2%.
• Annualized average leasing rate per square foot for 3Q14 was US$4.78, remaining flat compared to 2Q14. • The retention rate up to September 30, 2014 was 93.0%, an increase of 11 percentage points compared to 2Q14. • 19 lease contracts, equivalent to 1.5 million square feet (msf), were renewed in 3Q14. • The weighted average remaining lease term in 3Q14 remained stable at 3.6 years.
• In 3Q14, Terrafina reported a total of 31.0 msf of Gross Leasable Area (GLA) comprised of 218 properties and 231 tenants.
• Leasing activity for 3Q14 totaled 1.8 msf, of which 14.1% corresponds to new leasing contracts and 85.9% to lease renewals. Leasing activity was mainly concentrated in the markets of Ciudad Juarez, Queretaro, Silao, Cuautitlan Izcalli, and Ramos Arizpe.
Contacts in Mexico City: Francisco Martinez/ Ángel Bernal Investor Relations Officer / Chief Financial Officer Tel: +52 (55) 5279-8107 / +52 (55) 5279-8109 E-mail: [email protected] / [email protected]
Contacts in New York: Maria Barona i-advize Corporate Communications, Inc. Tel: +1 (212) 406-3691 E-mail: [email protected]
Financial
• 3Q14 rental revenues reached US$33.2 million, an increase of 1.9% or US$0.6 million compared to 2Q14. It is important to mention that accrued revenues are not included as rental revenues as these are a non-‐cash item. • NOI for 3Q14 was US$32.6 million, an increase of 4.4% or US$1.4 million compared to 2Q14; NOI Margin reached 91.1%, a 267 basis points increase compared to 2Q14. Terrafina’s 3Q14 Annualized NOI reached US$130.4 million; therefore Terrafina reaffirms its US$125 million NOI guidance for 2014. Considering expected NOI of US$125 million for 2014, and an average CBFI price for 3Q14 of US$2.24 (Ps. 29.34), the average implied cap rate reached 7.6%. • EBITDA for 3Q14 reached US$28.9 million; EBITDA Margin was 80.9%, a 272 basis point increase compared to 2Q14. • Adjusted Funds for Operations (AFFO) for 3Q14 reached US$18.6 million; AFFO margin was 51.8%, a 417 basis point increase compared to 2Q14. • Distributions for 3Q14 totaled US$18.6 million, an increase of US$1.7 million or 10% compared to 2Q14. Terrafina will pay Ps. 0.4038 per CBFI (US$0.0309 per CBFI) in distributions corresponding to the period comprised of July 1 to September 30, 2014. • Annualized distributions per CBFI for 3Q14 are expected to reach US$0.1235; considering the average CBFI price for 3Q14 of US$2.24 (Ps. 29.34) and the recent CBFIs issuance, Terrafina’s dividend yield is 5.5%.
Financial Highlights Operating Number of Developed Properties 1
Gross Leasable Area (GLA) (msf) 2 New Developments (msf) Land Reserves (msf) Occupancy Rate Avg. Leasing Rent / Square Foot (dollars) Weighted Avg. Remaining Lease Term (years) 3
Retention Rate
3Q14 218 31.04
2Q14 217 30.94
Var. 1
0.09 7.24 91.4% 4.78
0.00 7.32 91.1% 4.78
0.10 0.09 -‐0.08 24 bps 0.00
3.63
3.67
-‐0.04
93.0%
82.1%
1,095 bps
2Q14
Var.
3Q14
2Q14
Var.
13.1034
12.9997
Quarterly Financial
3Q14
(million pesos unless otherwise stated)
4 Rental Revenues Other Operating Income Net Revenues Net Operating Income (NOI)* NOI Margin 5*
EBITDA EBITDA Margin Funds from Operations (FFO)* FFO Margin Adjusted Funds from Operations (AFFO)* AFFO Margin Distributions 6 Distributions per CBFI Balance Sheet
435.6 57.7 503.9 427.0 91.1% 378.5 80.9% 272.5 58.3% 243.3 51.8% 243.3
424.0 42.7 474.6 404.6 88.4% 358.6 78.2% 255.4 55.8% 219.8 47.6% 219.8
2.7% 35.1% 6.2% 5.5% 267 bps 5.5% 272 bps 6.7% 248 bps 10.7% 417 bps 10.7%
0.4038
0.5769
-‐30.0%
Sep14
Cash & Cash Equivalents Investment Properties Land Reserves Total Debt Net Debt
Jun14
Var.
418.5 21,423.9 943.1 11,608.7 11,190.2
fx
fx
(million pesos unless otherwise stated)
6,445.5 22,141.2 941.8 11,601.7 5,156.2
1440.1% 3.3% -‐0.1% -‐0.1% -‐53.9%
(million dollars unless otherwise stated)
33.2 4.4 38.5 32.6 91.1% 28.9 80.9% 20.8 58.3% 18.6 51.8% 18.6
32.6 3.3 36.5 31.2 88.4% 27.6 78.2% 19.7 55.8% 16.9 47.6% 16.9
1.9% 34.0% 5.3% 4.4% 267 bps 4.8% 272 bps 5.8% 248 bps 10.0% 417 bps 10.1%
0.0309
0.0444
-‐30.4%
Sep14
Jun14
13.4541
13.0323
Var. _
(million dollars unless otherwise stated)
479.1 1,645.7 70.0 862.3 383.2
32.1 1,643.9 72.4 890.8 858.6
1391.9% 0.1% -‐3.3% -‐3.2% -‐55.4%
Figures in dollars in the Income Statement were converted into pesos at the average exchange rate for the period; for the Balance Sheet the exchange rate for the close of the period was used. (1) Millions of square feet. (2) Includes expansions and Built-‐to-‐Suits (BTS). (3) Indicates the lease renewal rate of the leases. (4) Excluding accrued 3 income as it is a non-‐cash item (5) Earnings before Interest, taxes, depreciation and amortization. (6) Certificados Bursátiles Fiduciarios Inmobiliarios -‐ Real Estate Investment Certificates. (*) Revenues and expenses have been adjusted for the calculation of the above mentioned metrics. For more information regarding these calculations, please refer to the "3Q14 Financial Performance" and "Annexes" section available in this document. Source: Pramerica Real Estate Investors – Portfolio Management – Fund Accounting
Comment by Alberto Chretin, Chief Executive Officer and Chairman of the Board It is with great pleasure that I share with you that during the third quarter of 2014, Terrafina moved forward with positive financial and operating results, as well as key achievements that will strengthen our growth strategy. During the month of September, we completed a successful equity issuance, which was oversubscribed by over 3x due to great institutional demand both domestically and globally. Terrafina raised a total of Ps.6,090.5 million (approximately US$460 million), which will be used for acquisitions and new developments, and will permit us to increase the portfolio’s size and profitability for the benefit of our investors. It is also important to mention that we will be diligent in utilizing these resources in accordance with the financial and management discipline that characterizes Terrafina´s strategy. Moreover, I would like to thank our investors for the trust and continuous support to make Terrafina a distinguished player in the Mexican real estate industry; we will remain committed to delivering clear and measurable results to the market. With regards to the main operating and financial highlights for the third quarter of 2014, I would like to point out occupancy levels, which rose by 24 basis points compared to the second quarter of 2014, reaching 91.4%. Occupancy in the Northern region was 90.6% due to a higher leasing activity. This was mainly in the cities of Ciudad Juarez and Ramos Arizpe. In the Bajio region, occupancy also increased to 92.3%. In the Central region, occupancy rose by 20 basis points to reach 92.6%. On a consolidated basis, Terrafina´s occupancy levels are is in line with its guidance to reach 2014 occupancy levels in the range of 91.5% to 91.7%. This result reflects the constant dedication and expertise demonstrated by our property managers in increasing leasing activity during the past nine months. In the third quarter 2014, Terrafina’s leasing activity concluded 1.8 million square feet in leasing contracts; 14.1% corresponded to new leasing contracts and 85.9% to lease renewals. Additionally, average annual leasing rates remained stable at US$4.78 per square foot compared to the second quarter of 2014. Terrafina also experienced stable average rents by region; the Northern region reached US$4.64 per square foot, the Bajio region reached US$4.82 per square foot and finally, the Central region slightly decreased by US$0.1 to US$5.15 average rent per square foot. Lastly, and with respect to the main financial indicators for the third quarter, I would like to mention that rental revenues reached US$33.2 million, Net Operating Revenue reached US$32.6 million and the Operating Margin reached 91.1%, and generated US$18.6 million in Adjusted Operating Funds. Total distributions in dollars increased more than 10.0% compared to second quarter. Also, distribution per CBFI reached Ps. 0.4038 or US$0.0309, which represented an annualized distribution of Ps. 1.62 or US$0.1235 per CBFI, and a 5.5% dividend yield, considering the average CBFI price for the third quarter of 2014. Sincerely, Alberto Chretin
Terrafina’s Chief Executive Officer and Chairman of the Board
4
Operational Highlights Highlights by Region
(as of September 30, 2014)
# Buildings
North
Bajio
Central
Total
151
40
27
218
# Tenants
153
40
38
231
GLA (msf)
18.5
6.5
6.0
31.0
0.2
0.0
0.0
0.2
3.6
0.1
3.6
7.2
90.6%
92.3%
92.6%
91.4%
4.64
4.82
5.15
4.78
Annualized Rental Base %
57.5%
21.4%
21.1%
100.0%
Renewal Rate
100.0%
93.9%
69.8%
93.0%
New Developments
1
(msf)
Land Reserves (msf) Occupancy Rate Average Leasing Rent / Square Foot (dollars)
(1) Includes expansions and Built-‐to-‐Suit (BTS). Source: Pramerica Real Estate Investors -‐ Portfolio Management
NORTH -
-
BAJIO
CENTRAL Estado de Mexico Distrito Federal Puebla Tabasco
San Luis Potosi Jalisco Aguascalientes Guanajuato Queretaro
-
Baja California Sonora Chihuahua Coahuila Nuevo Leon Tamaulipas Durango
Terrafina’s operations 3Q14.
Composibon by Asset Type as of 3Q14
Leasing Activity
(as a % of total GLA)
3Q14
Operating Portfolio (msf):
30.9%
69.1%
Manufacturing
Var.
Renewals
1.5
1.3
0.2
New Leases
0.1
0.4
-‐0.3
Properties Under Development
0.2
0.0
0.2
Total Square Feet of Leases Signed
1.8
1.7
0.1
93.0%
82.1%
1,095 bps
Renewal Rate
Distribukon
2Q14
Source: Pramerica Real Estate Investors -‐ Portfolio Management
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Operational Highlights (continued) Occupancy and Rents by Region
Consolidated
Maturities and Renewals by Region 0
Consolidated
Avg. Leasing Rent/ Square Foot (dollars)
(As of September 30, 2014)
90.6%
4.64
North
Baja California
91.8%
4.49
Sonora
86.3%
4.18
Chihuahua
96.1%
4.80
Coahuila
97.7%
Nuevo Leon Tamaulipas Durango
Occupancy Rate
Maturities % o f T otal
Renewals % o f Total (number of contracts) Renewals
(number of contracts)
Maturities
14
66.7%
14
100.0%
Baja California
0
0.0%
0
0.0%
Sonora
0
0.0%
0
0.0%
Chihuahua
11
52.4%
11
100.0%
4.43
Coahuila
0
0.0%
0
0.0%
75.3%
4.76
Nuevo Leon
2
9.5%
2
100.0%
62.3%
4.22
Tamaulipas
1
4.8%
1
100.0%
85.2%
3.96
Durango
0
0.0%
0
0.0%
92.3%
4.82
4
19.0%
3
75.0%
San Luis Potosi
98.6%
4.72
San Luis Potosi
2
9.5%
1
50.0%
Jalisco
93.0%
5.45
Jalisco
0
0.0%
0
0.0%
Aguascalientes
100.0%
4.47
Aguascalientes
0
0.0%
0
0.0%
Guanajuato
87.5%
4.93
Guanajuato
1
4.8%
1
100.0%
Queretaro
84.4%
4.60
Queretaro
1
4.8%
1
100.0%
92.6%
5.15
3
14.3%
2
66.7%
Estado de Mexico
91.4%
5.18
Estado de Mexico
3
14.3%
2
66.7%
Distrito Federal
100.0%
10.30
Distrito Federal
0
0.0%
0
0.0%
Puebla
100.0%
4.19
Puebla
0
0.0%
0
0.0%
Tabasco
100.0%
5.01
Tabasco
0
0.0%
0
0.0%
91.4%
4.78
21
100.0%
19
90.5%
(As of September 30, 2014)
North
Bajio
Central
Total
Source: Pramerica Real Estate Investors -‐ Portfolio Management
Bajio
Central
Total
Source: Pramerica Real Estate Investors -‐ Portfolio Management *Out of the matured leases in the quarter
6
3Q14 Operational Performance Composition by Geographical Diversification
In 3Q14, Terrafina’s properties (based on GLA per square foot) were mainly located in the Northern region of Mexico, representing 59.7% of GLA; while the Bajio and Central regions represented 21.0% and 19.3%, respectively. 3Q14
as a % of GLA 3Q14
2Q14
as a % of GLA 2Q14
18.53
59.7%
18.45
59.7%
Baja California
1.13
3.6%
1.13
3.7%
Sonora
0.28
0.9%
0.28
0.9%
Chihuahua
9.84
31.7%
9.84
31.9%
Coahuila
3.38
10.9%
3.38
11.0%
Nuevo Leon
1.67
5.4%
1.58
5.1%
Tamaulipas
1.76
5.7%
1.76
5.7%
Durango
0.46
1.5%
0.46
1.5%
6.51
21.0%
6.49
20.9%
San Luis Potosi
1.89
6.1%
1.87
6.1%
Jalisco
1.29
4.2%
1.29
4.2%
Aguascalientes
0.75
2.4%
0.75
2.4%
Guanajuato
0.54
1.7%
0.54
1.7%
Queretaro
2.04
6.6%
2.04
6.5%
6.00
19.3%
6.00
19.4%
Estado de Mexico
5.14
16.6%
5.14
16.6%
Distrito Federal
0.02
0.1%
0.02
0.1%
Puebla
0.18
0.6%
0.18
0.6%
Tabasco
0.65
2.1%
0.65
2.1%
31.04
100.0%
30.94
100.0%
North
Bajio
Central
Total
Total Gross Leasable Area / million square feet. Potential leasable area of land reserves is not included. Source: Pramerica Real Estate Investors – Portfolio Management
Composition by Asset Type
At the end of 3Q14, 30.9% of Terrafina’s total portfolio consisted of distribution and logistics properties, and 69.1% were manufacturing properties, remaining at stable levels compared to 2Q14. Composibon by Asset Type as of 3Q14
(as a % of total GLA)
30.9%
Distribukon
3Q14
2Q14
Var.
Distribution
30.9%
30.9%
0 bps
Manufacturing
69.1%
69.1%
0 bps
Source: Pramerica Real Estate Investors -‐ Portfolio Management
69.1%
Manufacturing
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Composition by Sector
As of September 30, 2014, tenant diversification by industrial sector was as follows: Diversificabon by Sector as of 3Q14 (as a % of leased GLA)
7.4% 9.4%
Automokve Industrial properkes
28.3%
9.6%
Consumer goods Logiskcs and Trade
17.0%
Aviakon
28.3%
Non-‐durable consumer goods
Industrial Sector Diversification
3Q14
2Q14
Automotive
28.3%
28.1%
20 bps
Industrial properties
28.3%
28.5%
-‐14 bps
Consumer goods
17.0%
17.4%
-‐44 bps
Logistics and trade
9.6%
9.7%
-‐13 bps
Aviation
9.4%
9.4%
-‐6 bps
Non-‐durable consumer goods
7.4%
6.9%
53 bps
100.0%
100.0%
Total
Var.
Source: Pramerica Real Estate Investors -‐ Portfolio Management
Top Client Composition
Terrafina’s tenant leasing base is widely diversified across Mexico’s main cities. For 3Q14, Terrafina’s top client, top 10 clients and top 20 clients base, represented 4.4%, 19.8% and 31.4% of total revenues respectively. Top Clients
Leased Square Feet (million)
% Total GLA
% Total Revenues
Top Client
1.24
4.4%
4.4%
Top 10 Clients
5.62
19.8%
20.4%
Top 20 Clients
8.90
31.4%
32.3%
(As of September 30, 2014)
Source: Pramerica Real Estate Investors -‐ Portfolio Management
8
Occupancy
3Q14 occupancy rate was of 91.4%, an increase of 24 basis points compared to 2Q14. Additionally, considering the signed letters of intent (LOI), occupancy was 92.2%. During the 3Q14, Terrafina’s leasing activity reached 1.8 msf, of which 14.1% corresponded to new leasing contracts and 85.9% to contract renewals. Leasing activity mainly took place in the Ciudad Juarez, Queretaro, Silao, Cuautitlan Izcalli and Ramos Arizpe markets. In addition to this leasing activity, Terrafina signed LOIs for an additional 0.78 msf, which are expected to be finalized during the fourth quarter of 2014. Occupancy as of 3T14 (as % of Total GLA)
7.8% 0.8%
Leased GLA Vacant GLA Signed Lemers of Intent
3Q14
2Q14
Leased GLA
91.4%
91.1%
24 bps
Vacant GLA
7.8%
8.9%
-‐102 bps
Signed Letters of Intent
0.8%
0.0%
78 bps
100.0%
100.0%
Total
Var.
Source: Pramerica Real Estate Investors -‐ Portfolio Management
91.4%
Lease Maturities
At the conclusion of 3Q14, Terrafina had 231 leasing contracts. These contracts have an average maturity of 3 to 5 years for logistics and distribution properties activities and 5 to 7 years for manufacturing. Annual average maturities (as a percentage of annual base rents) remain at levels of 10% to 17% for the next five years. The following table shows Terrafina’s leasing maturity schedule for the coming years: 2014 2015 2016 2017 2018 Thereafter
Annual Base Rent % o f T otal (millions of dollars)
6.5 23.8 16.4 16.6 13.5 58.6
4.8% 17.6% 12.1% 12.3% 10.0% 43.2%
Occupied Square Feet (millions)
% of Total
1.57 4.91 3.35 3.48 2.91 12.14
5.5% 17.3% 11.8% 12.3% 10.3% 42.8%
Source: Pramerica Real Estate Investors -‐ Portfolio Management
9
Capital Deployment New Developments and Non-‐Strategic Asset Sales
New Developments
In 3Q14, Terrafina signed two leasing contracts for the development of an 85,000 square foot BTS for a new tenant located in the city of Monterrey and an 18,000 square foot expansion in the city of San Luis Potosi; both developments in Terrafina’s existing land reserves. These new developments will contribute US$0.7 million to 2015 NOI, with a 13.4% estimated development yield, considering the total expected investment for US$5.4 million.
The following table shows new developments activity from January 1 to September 30, 2014: January -‐ September 2014
Capital Deployment -‐ New Developments
Square Feet (millions)
Total % Paying Total Expected Cost per Expected Investment Square F eet Rent b y End Investment (millions o f d ollars) (dollars) of the Period (millions of pesos)
North
0.09
60.0
4.6
54.18
0.0%
Bajio
0.15
75.2
5.8
38.50
0.0%
Central
0.00
0.0
0.0
0.00
0.0%
Total
0.23
135.2
10.4
44.17
0.0%
1
Proforma NOI (million dollars)
1.3
2
Estimated Stabilized Yield
(1) Net Operating Income for the next twelve months
(2) Proforma NOI divided by the total expected investment Source: Pramerica Real Estate Investors -‐ Portfolio Management
Capital Expenditures (CAPEX)
12.3%
Terrafina’s CAPEX are classified as those recurring expenses that took place based on upcoming leasing maturities and properties improvements. The main goal of these expenses is the renewal of leasing contracts as well as the improvement of property conditions taking into account tenant requirements. Terrafina expects to apply CAPEX towards vacant properties as well as towards the development of new GLA by means of expansions and/or new developments. Additionally, it is important to consider that CAPEX intended for expansions and new developments are not financed with Terrafina’s operating cash flow and therefore are not reflected in the income statement. CAPEX accounts are comprised as follows: 1) Tenant improvements resources as well as recurring maintenance CAPEX. 2) Broker and administrator fees. 3) CAPEX for new developments, which due to their nature, are generally capitalized.
10
In 3Q14, Terrafina’s total CAPEX investment was US$5.9 million. The breakdown is shown in the following table:
3Q14
3Q14
(millions of (millions of pesos) dollars)
Tenant Improvements & Recurring CAPEX Leasing Commissions 1 Development CAPEX
12.6 13.0 51.0
1.0 1.0 3.9
Total CAPEX
76.6
5.9
Maintenance expenses for vacant properties are included in the Tenant Improvements & Recurring Capex figures. (1) Capex for expansions/new developments.
Source: Pramerica Real Estate Investors -‐ Portfolio Management
Land Reserves
Terrafina’s land reserves as of September 30, 2014 were comprised of 13 land reserve properties, which accounted for 7.2 msf potential GLA for the development of future industrial assets. Terrafina’s land reserves distribution was as follows: as of September 30, 2014 Square Feet (millions) North Bajio Central Total Land Portfolio
Land at Land at Appraisal Appraisal Cost Cost Value Value (millions of pesos)
(millions of dollars)
(millions of pesos)
(millions of dollars)
3.6 0.1 3.5
441.3 9.6 606.9
32.8 0.7 45.1
471.4 9.6 460.8
35.0 0.7 34.5
7.2
1,057.8
78.6
941.8
70.2
Source: Pramerica Real Estate Investors -‐ Portfolio Management and Fund Accounting
Non-‐Strategic Asset Sales
During 3Q13, Terrafina initiated a capital recycling program through the sale of non-‐strategic properties. The implementation of this program is consistent with Terrafina’s objective of specializing in key markets in order to increase revenues, improve profitability of the assets and maintain constant and sustainable growth for Terrafina and its shareholders. Currently, we are reviewing different sales opportunities that once confirmed, will be announced to the market.
11
3Q14 Financial Performance
Financial Results and Calculations
Terrafina’s 3Q14 financial results are presented in Mexican pesos and U.S. dollars. Figures on the income statement for each period were converted to dollars using the average exchange rate for 3Q14. For the balance sheet, the exchange rate used was that of September 30, 2014. It is important to consider that comparisons in this earnings report are made based on 2Q14 figures, since 3Q13 does not reveal the American Industries – Kimco acquisition effects. Terrafina adheres to the best accounting practices for measuring the FIBRA’s (REIT) performance results by providing relevant metrics to the financial community. Throughout the following financial performance section, additional calculations are available. It is important to note that these metrics must not be considered individually to evaluate Terrafina’s results. It is recommended to use them in combination with other International Financial Reporting Standards metrics to measure Terrafina’s performance. Terrafina presents in this earnings report additional metrics such as Net Operating Income (NOI), Earnings before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), and Adjusted Funds from Operations (AFFO). A breakdown of these calculations is available throughout this document. In addition, Terrafina recommends reviewing the Appendices as a reference of the integration of different items of Terrafina’s financial statement. This information is available in the last section of this document. Past performance is not a guarantee or reliable indicator of future results.
12
Rental Revenues
In 3Q14, rental revenues totaled US$33.2 million, a 1.9% or US$0.6 million increase compared to 2Q14. Rental revenues do not include accrued revenues, as these are a non-‐cash item.
Other Operating Income
In 3Q14, other operating income totaled US$4.4 million, an increase of US$1.1 million or 34.0% compared to 2Q14. This increase was due to the VAT reimbursement during the quarter, and as a result is not considered as operating revenue. The remainder of other operating income mainly stems from leasing contract deposits refunds from Triple-‐Net Leases. Expenses reimbursable to Terrafina mainly include electricity, property taxes, insurance and maintenance activities. 3Q14 net revenues reached US$38.5 million, an increase of US$2.0 million, or 5.3% compared to 2Q14.
3Q14
Rental Revenue
2Q14
Var. %
3Q14
(millions of pesos)
2Q14
Var. %
(millions of dollars)
435.6
424.0
2.7%
33.2
32.6
1.9%
10.6
7.9
34.2%
0.8
0.6
33.3%
57.7
42.7
35.1%
4.4
3.3
34.0%
Reimbursable Expenses as Revenues
33.1
34.3
-‐3.5%
2.5
2.7
-‐6.1%
Reimbursable Tenant Improvements
2.5
2.7
-‐7.4%
0.1
0.2
-‐26.5%
Other non-‐cash income
22.1
5.7
287.7%
1.7
0.4
335.0%
503.9
474.6
6.2%
38.5
36.5
5.3%
1
Accrued Income Other Operating Revenues 2
Net Revenue
(1) Straight line rent adjustment; non-‐cash item. (2) Triple net leases expenses reimbursed to Terrafina from its tenants. Source: Pramerica Real Estate Investors -‐ Fund Accounting
For additional information regarding the revenue breakdown used to calculate additional metrics presented in this earnings report, please refer to Appendix 1 in the last section of this document.
Real Estate Expenses
In 3Q14, real estate expenses totaled US$6.3 million, remaining stable compared to 2Q14. It is important to differentiate between expenses directly related to the operation and maintenance of the industrial portfolio, as these are used to calculate NOI. The remainder of the accounts included in real estate expenses are considered non-‐property related expenses, and are used to calculate EBITDA and AFFO. For additional information regarding the real estate expenses breakdown, please refer to Appendix 2 in the last section of this document.
13
Net Operating Income (NOI)
During 3Q14, NOI reached US$32.6 million, an increase of 4.4%, or US$1.4 million compared with 2Q14. NOI margin increased 267 basis points, reaching 91.1% compared to 88.4% in 2Q14. The following table displays the calculation of NOI for 3Q14:
3Q14
2Q14
Var. %
(millions of pesos unless otherwise stated)
1
Rental Revenues
3Q14
2Q14
Var. %
(millions of dollars unless otherwise stated)
435.6
424.0
2.7%
33.2
32.6
1.9%
33.1
34.3
-‐3.5%
2.5
2.7
-‐6.1%
468.7
458.3
2.3%
35.8
35.3
1.3%
Repair and Maintenance
-‐8.3
-‐9.1
-‐8.8%
-‐0.6
-‐0.7
-‐14.3%
Property Taxes
-‐5.3
-‐6.9
-‐22.9%
-‐0.4
-‐0.5
-‐20.0%
Property Management Fees
-‐9.7
-‐13.1
-‐26.0%
-‐0.7
-‐1.0
-‐30.0%
Electricity
-‐9.0
-‐12.2
-‐26.2%
-‐0.7
-‐0.9
-‐22.2%
Property Insurance
-‐2.3
-‐5.4
-‐56.7%
-‐0.2
-‐0.4
-‐50.0%
Security
-‐3.4
-‐3.6
-‐5.6%
-‐0.3
-‐0.3
0.0%
Other Operational Expenses
-‐3.6
-‐3.4
7.1%
-‐0.3
-‐0.3
0.0%
-‐41.7
-‐53.7
-‐22.4%
-‐3.2
-‐4.1
-‐22.0%
Net Operating Income
427.0
404.6
5.54%
32.6
31.2
4.4%
NOI Margin
91.1%
88.4%
267 bps
91.1%
88.4%
267 bps
2
Other Operating income Net Revenues for NOI Calculation
Real Estate Operating Expenses for NOI Calculation 3
(1)Excludes accrued income from straight-‐line rent adjustments, as it is a non-‐cash item. (2) Excludes tenant improvements reimbursements 'which are included in AFFO calculation. (3) The income generated by the operation of the property, independent of external factors such as financing and income taxes. NOI is the result of Net Revenues (includes rental income and triple net leases expenses reimbursements) minus Real Estate Operating Expenses (costs incurred during the operation and maintenance of the industrial portfolio). Source: Pramerica Real Estate Investors -‐ Fund Accounting
Fees and Administrative Expenses
Fees and administrative expenses in 3Q14 totaled US$6.1 million, which increased 75.1%, or US$2.6 million, compared to 2Q14. This increase was mainly explained by higher non operational administrative fees related to VAT reimbursement that took place during the third quarter. Fees and administrative expenses for 3Q14 were as follows: • 33.4% were related to advisory fees paid to the external advisor1 • 11.1% for professional and consulting services • 55.5% for payroll, administrative fees and other expenses
For additional information regarding the commissions and administrative expenses breakdown, please refer to Appendix 3 located in the last section of this document.
1) PLA Administradora Industrial, S. de R.L. de C.V., is a Mexican affiliate of PREI, and Advisor as per the Advisory Contract.
14
EBITDA
In 3Q14, EBITDA totaled US$28.9 million, an increase of US$1.3 million, or 4.8%, compared to 2Q14. EBITDA margin for 2Q14 was 80.9%, a 272 basis point increase compared to the previous quarter. The following shows the EBITDA calculation 3Q14:
3Q14
2Q14
Var. %
3Q14
(millions of pesos unless otherwise stated)
1
Rental Revenues
2Q14
Var. %
(millions of dollars unless otherwise stated)
435.6
424.0
2.7%
33.2
32.6
1.9%
Other Operating income
33.1
34.3
-‐3.5%
2.5
2.7
-‐6.1%
Real Estate Expenses for EBITDA Calculation
-‐45.8
-‐57.0
-‐19.6%
-‐3.5
-‐4.4
-‐20.5%
Real Estate Operating Expenses for NOI Calculation
-‐41.7
-‐53.7
-‐22.4%
-‐3.2
-‐4.1
-‐22.0%
Advertising
-‐0.5
-‐0.5
6.0%
0.0
0.0
-‐
Admin. Property Insurance Expenses
-‐0.7
-‐0.8
-‐12.5%
-‐0.1
-‐0.1
-‐
Other Admin. Real Estate Expenses
-‐2.9
-‐2.0
45.0%
-‐0.2
-‐0.2
-‐
Fees and Admin. Expenses
-‐44.4
-‐42.7
3.9%
-‐3.3
-‐3.3
0.9%
External Advisor Fees
-‐27.1
-‐26.3
3.0%
-‐2.0
-‐2.0
2.5%
Legal, Admin. and Other Professional Fees
-‐11.8
-‐11.1
6.1%
-‐0.9
-‐0.9
0.0%
Trustee Fees
-‐1.0
-‐1.6
-‐37.5%
-‐0.1
-‐0.1
-‐20.0%
Payroll
-‐2.8
-‐2.9
-‐3.4%
-‐0.2
-‐0.2
0.0%
Other Expenses
2
-‐1.7
-‐0.8
112.5%
-‐0.1
-‐0.1
-‐
3
EBITDA
378.5
358.6
14.9%
28.9
27.6
4.8%
EBITDA Margin
80.9%
78.2%
272 bps
80.9%
78.2%
272 bps
(1) Excludes accrued income from straight line rent adjustments as it is a non-‐cash item. (2) Excludes tenant improvements reimbursements which is included in AFFO calculation. (3) Earnings before interest, taxes, depreciation and amortization. Source: Pramerica Real Estate Investors -‐ Fund Accounting
For additional information regarding the commissions and administrative expenses breakdown used for the calculation of EBITDA and AFFO, please refer to Appendix 3 located in the last section of this document.
15
Financing Costs
In 3Q14, Terrafina registered net financing costs of US$8.1 million, an increase of US$0.2 million or 2.4% compared to the previous quarter.
3Q14
2Q14
Var. %
3Q14
(millions of pesos)
Interest Paid
2Q14
Var. %
(millions of dollars)
-‐110.9
-‐103.4
7.2%
-‐8.5
-‐8.0
6.3%
-‐0.3
-‐0.5
-‐50.0%
0.0
0.0
-‐
Recurring
-‐0.3
-‐0.5
-‐50.0%
0.0
0.0
-‐
Non Recurring
0.0
0.0
-‐
0.0
0.0
-‐
5.1
0.7
628.6%
0.4
0.1
289.0%
-‐106.0
-‐103.2
2.7%
-‐8.1
-‐7.9
2.4%
Borrowing Expenses
Interest Income Total
Source: Pramerica Real Estate Investors -‐Fund Accounting
Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)
In the 3Q14, Terrafina’s FFO increased 5.8%, or US$1.1 million compared to 2Q14, reaching US$20.8 million; FFO Margin of 58.3%, a 248 basis point increase quarter-‐to-‐quarter. Additionally, Terrafina reported AFFO of US$18.6 million, an increase of US$1.7 million, or 10.0% compared to 2Q14. AFFO margin was 51.8%, an increase of 417 basis points versus 2Q14.
EBITDA
3Q14
2Q14
Var. %
(millions of pesos unless otherwise stated)
3Q14
2Q14
Var. %
(millions of dollars unless otherwise stated)
378.5
358.6
5.5%
28.9
27.6
Finance Cost
-‐106.0
-‐103.2
2.7%
-‐8.1
-‐7.9
2.4%
Funds from Operations (FFO)
272.5
255.4
6.7%
20.8
19.7
5.8%
FFO Margin
58.3%
55.8%
248 bps
58.3%
55.8%
248 bps
Tenant Improvements
-‐12.6
-‐13.1
-‐3.8%
-‐1.0
-‐1.1
-‐13.4%
Leasing Commissions
-‐13.0
-‐10.7
21.5%
-‐1.0
-‐0.8
25.0%
0.0
-‐9.6
-‐
0.0
-‐0.7
-‐
-‐3.6
-‐2.2
63.6%
-‐0.3
-‐0.2
50.0%
1
2
CAPEX Reserve 3
Other Non Recurring Expenses
4.8%
Adjusted Funds from Operations (AFFO)
243.3
219.8
10.7%
18.6
16.9
10.0%
AFFO Margin
51.8%
47.6%
417 bps
51.8%
47.6%
417 bps
(1) Net Operational Interest Expenses comprised by interest paid, recurring borrowing expenses and interest income. (2) CAPEX reserve for maintenance activities (3) Expenses related to acquisitions, legal and other expenses. Source: Pramerica Real Estate Investors -‐ Fund Accounting
Net Profit (Loss)
In 3Q14, Terrafina experienced a net loss of US$117.8 million. This result was mainly explained by the fair value adjustment on borrowings and a foreign exchange loss as there was high exchange rate volatility at the end of the quarter. It is important to mention that fair value adjustments on borrowings and foreign exchange losses are non-‐cash items.
16
The following table presents the calculation of Net (Loss) Profit for 3Q14 and 2Q14:
3Q14
2Q14
Var. %
(millions of pesos unless otherwise stated)
Net Revenues
503.9
474.6
Real Estate Expenses
-‐83.0
Fees and Other Expenses
-‐80.5
Gain (Loss) from Sales of Real Estate Properties Net Income (Loss) from Fair Value Adjustment on Investment Properties Net Income (Loss) from Fair Value Adjustment on Derivative Financial Instruments
3Q14
2Q14
Var. %
(millions of dollars unless otherwise stated)
0
0
6.2%
38.5
36.5
5.3%
-‐80.6
3.0%
-‐6.3
-‐6.3
-‐0.4%
-‐44.9
79.2%
-‐6.1
-‐3.5
75.1%
0.0
0.0
-‐
0.0
0.0
-‐
-‐27.8
315.9
-‐108.8%
-‐2.1
24.3
-‐108.7%
-‐2.8
-‐21.6
-‐87.1%
-‐0.2
-‐1.7
-‐87.2%
Net Income (Loss) from Fair Value Adjustment on Borrowings
-‐221.0
241.1
-‐191.7%
-‐16.9
18.5
-‐191.0%
Foreign Exchange Gain (loss)
-‐100.6
-‐5.8
-‐
-‐7.7
-‐0.4
-‐
Operating Profit
-‐11.8
878.7
-‐101.3%
-‐0.9
67.6
-‐101.3%
Operating Margin
-‐2.3%
185.2%
-‐18,753 bps
-‐2.3%
185.2%
-‐18,753 bps
5.1
0.7
628.6%
0.4
0.1
0.0%
Financial Expenses
-‐111.1
-‐103.9
6.9%
-‐8.5
-‐8.0
6.1%
Net Financial Cost
-‐106.0
-‐103.2
2.7%
-‐8.1
-‐7.9
1.9%
Net Profit (Loss)
-‐117.8
775.5
-‐
-‐9.0
59.7
-‐
Net Margin
-‐23.4%
163.4%
-‐
-‐23.4%
163.4%
-‐
Financial Income
Source: Pramerica Real Estate Investors -‐ Fund Accounting
Distributions per CBFIs
In accordance with 3Q14 results, Terrafina will distribute US$18.6 million, or US$0.0309 per CBFI, a decrease of 30.4%, compared to the 2Q14 distributions per CBFIs. This distribution decrease was due to the recent equity issuance made during the quarter. Additionally, Terrafina established the following distribution objective post follow-‐on issuance: • Preserve a dividend yield in the 5% range and a nominal distribution of Ps. 0.40 per CBFI following the equity issuance. Additionally, to maintain the 2014 distribution guidance of increasing same-‐store distributions by 10% in nominal terms.
17
Terrafina’s 3Q14 and 2Q14 distributions are presented in the following table: 3Q14
2Q14
Total Outstanding CBFIs (million CBFIs)
602.5
381.0
CBFI Price (quarterly average)
29.34
26.48
Distributions
243.3
219.8
Distributions Per CBFI
0.4038
0.5769
FX Rate USD/MXN (closing period)
13.1034
12.9997
18.6
16.9
0.0309
0.0444
5.5%
8.7%
(millions of pesos unless otherwise stated) 1
Distributions (million dollars) Distributions Per CBFI (dollars) 2
Annualized Distribution Yield
(1) Total number of outstanding CBFIs: 381,014,635 in 2Q14 and 602,487,069 in 3Q14. (2) Distribution per CBFI divided by the average CBFI price of the quarter. The distribution yield calculation has been annualized for comparison purposes. Source: Pramerica Real Estate Investors -‐ Fund Accounting
Total Debt
As of September 30, 2014, Terrafina’s total debt reached for US$862.3 million. The average cost of Terrafina’s long-‐ term debt, which is U.S. dollar-‐denominated, was 3.79%. Terrafina’s loans are set at variable interest rates and are hedged with interest rate caps and fixed-‐rate options. Currency (as of September 30, 2014)
Long Term Debt 1 Citibank Banorte
2,3
GEREM 3 HSBC
Net Debt
Terms
Extension Option
Maturity
496.2 37.2
Libor + 3.50% Libor + 3.30%
Interest Only
Mar 2016
-‐
Interest + Principal
May 2016
-‐
Dollars
3,790.9 633.5
281.8 47.1
Libor + 3.75%
Interest + Principal
Sep 2018
Sep 2020
Libor + 3.75%
Interest + Principal
Sep 2018
Sep 2020
11,601.7
862.3
6,445.5
479.1
5,156.2
383.2
Interest Rate
6,676.5 500.8
Net Cash
Millions of dollars
Dollars Dollars
Dollars
Total Debt
Millions of pesos
(1) Syndicated loan facility with six banks. (2) Syndicated loan facility with four banks. (3) One-‐year interest only grace period. Source: Pramerica Real Estate Investors -‐ Fund Accounting and Capital Markets
Additionally, Terrafina’s leverage (LTV) and debt service coverage ratio (DSCR) metrics are included as requested by the Mexican Securities and Exchange Commission (CNBV) as part of the new regulations.
18
The following tables show Terrafina’s leverage and debts service coverage as of September 30, 2014 as well as projections for the next six quarters:
Loan-‐to-‐Value (LTV) (as of September 30, 2014)
(millions of pesos)
(millions of dollars)
Total Assets
28,980.0
2,154.0
Total Debt
11,601.7
862.3
40.0%
1
Loan-‐to-‐Value (LTV)
(1) Total Debt divided by Total Assets as defined by the National Securities and Banking Commission (CNBV) Source: Pramerica Real Estate Investors -‐ Fund Accounting and Capital Markets
Debt Service Coverage Ratio (DSCR) period
(millions of dollars)
September 30, 2014
6,445.5
479.1
Σ next 6 quarters
138.4
10.3
Σ next 6 quarters
1,139.0
84.7
September 30, 2014
43.1
3.2
Cash & Cash Equivalents Recoverable Taxes 1
EBIT after distributions Available Credit Line
(millions of pesos)
period
(millions of pesos) (millions of dollars)
Interest Payments
Σ next 6 quarters
608.1
45.2
Principal Payments
Σ next 6 quarters
6,847.7
509.0
Recurring CAPEX
Σ next 6 quarters
209.9
15.6
Development Expenses
Σ next 6 quarters
60.5
4.5
Service Coverage Ratio (DSCR) Debt 2
1.0x
(1) Earnings Before Interest and Taxes (2) (Cash & Cash Equivalents + Recoverable Taxes + EBIT After Distributions + Available Credit Line) / (Interest Payments + Principal Payments + Recurring CAPEX + Development Expenses) Source: Pramerica Real Estate Investors -‐ Fund Accounting and Capital Markets
19
About Terrafina Terrafina (BMV:TERRA13) is a Mexican real estate investment trust formed primarily to acquire, develop, lease and manage industrial real estate properties in Mexico. Terrafina’s portfolio consists of attractive, strategically located warehouses and other light manufacturing properties throughout the Central, Bajio and Northern regions of Mexico. It is internally managed by highly qualified industry specialists, and externally advised by PREI®. Terrafina owns 231 real estate properties, including 218 developed industrial facilities with a collective GLA of approximately 31 million square feet and 13 land reserve parcels, designed to preserve the organic growth capability of the portfolio. Terrafina’s objective is to provide attractive risk-‐adjusted returns for the holders of its certificates through stable distributions and capital appreciations. Terrafina aims to achieve this objective through a successful performance of its industrial real estate and complementary properties, strategic acquisitions, access to a high level of institutional support, and to its management and corporate governance structure. For more information, please visit www.terrafina.mx
About Pramerica Real Estate Investors Pramerica Real Estate Investors is a leader in the global real estate investment management business, offering a broad range of investment vehicles that invest in private and public market opportunities in the United States, Europe, the Middle East, Asia, Australia and Latin America. Headquartered in Madison, N.J., the company also has offices in Atlanta, Chicago, Miami, New York, San Francisco, Frankfurt, Lisbon, London, Luxembourg, Munich, Paris, Abu Dhabi, Mexico City, Hong Kong, Seoul, Singapore, Sydney, and Tokyo. The company also has a representative presence in Rio de Janeiro. Pramerica Real Estate Investors has gross assets under management of USD $59.3 billion (US$43.7 billion net assets), as of June 30, 2014. For more information, please visit www.pramericarei.com
About Pramerica Financial Pramerica Financial is a trade name used by Prudential Financial, Inc., a company incorporated and with its principal place of business in the United States, and its affiliates in select countries outside the United States. PFI (NYSE: PRU), a financial services leader with more than $1 trillion of assets under management as of June 30, 2014, has operations in the United States, Asia, Europe, and Latin America. PFI’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-‐related services, mutual funds and investment management. In the U.S., the company’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com/. PFI of the United States is not affiliated in any manner with Prudential, plc, a company incorporated in the United Kingdom. Pramerica, the Pramerica logo and the rock symbol are service marks of Pramerica Financial and its related entities, registered in many jurisdictions worldwide.
Forward Looking Statements This document may include forward-‐looking statements that may imply risks and uncertainties. Terms such as "estimate", "project", "plan", "believe", "expect", "anticipate", "intend", and other similar expressions could be construed as previsions or estimates. Terrafina warns readers that declarations and estimates mentioned in this document, or realized by Terrafina’s management imply risks and uncertainties that could change in function of various factors that are out of Terrafina’s control. Future expectations reflect Terrafina’s judgment at the date of this document. Terrafina reserves the right or obligation to update the information contained in this document or derived from this document. Past or present performance is not an indicator to anticipate future performance.
20
Note to Investors Our CBFIs may not be offered or sold to any person in the United Kingdom, other than to persons whose ordinary activities involve them acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom. For further details about eligible offerees and transfer restrictions, see the section “Transfer Restrictions” referenced in the Offering Memorandum of Terrafina.
21
Conference Call
(BMV: TERRA13) Cordially invites you to participate in its Third Quarter 2014 Results Wednesday, October 29, 2014 11:00 a.m. Eastern Time 9:00 a.m. Mexico City Time
Presenting for Terrafina: Alberto Chretin, Chief Executive Officer Angel Bernal, Chief Financial Officer
*** To access the call, please dial: from within the U.S. 1-‐800-‐311-‐9404 from outside the U.S. 1-‐334-‐323-‐7224 Conference ID Number: 34974 Audio Webcast Link: http://www.videonewswire.com/event.asp?id=100584 Conference Replay Will be provided for your call Dial 1-‐877-‐919-‐4059 or 1-‐334-‐323-‐0140 to listen Passcode: 14169054
22
Appendix
Appendix 1 – Revenues
Terrafina’s revenues are mainly classified as rental revenues and other operating reimbursable revenues. Additionally, there are accounting revenues that must be registered according with IFRS; however these are considered non-‐cash items and therefore are excluded in some calculations. Reimbursable tenant improvements are included in the tenant improvement expenses for the AFFO calculation. Revenues
NOI calculation
Rental Revenue
Non Cash
Accrued Income
NOI calculation AFFO calculation Non Cash
3Q14
2Q14
(millions of pesos)
3Q14
2Q14
(millions of dollars)
435.6
424.0
33.2
32.6
10.6
7.9
0.8
0.6
57.7
42.7
4.4
3.3
Reimbursable Expenses as Revenues
33.1
34.3
2.5
2.7
Reimbursable Tenant Improvements
2.5
2.7
0.1
0.2
Other non-‐cash income
22.1
5.7
1.7
0.4
503.9
474.6
38.5
36.5
1
Other Operating Revenues 2
Net Revenue
(1) Straight line rent adjustment. (2) Triple net leases expenses reimbursed to Terrafina from its tenants. Source: Pramerica Real Estate Investors -‐ Fund Accounting
23
Appendix 2 – Real Estate Expenses
Real estate expenses are comprised of recurring figures related with the operation (used for the Net Operating Profit calculation) as well as non-‐recurring figures used for metric calculations such as Earnings Before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO). Terrafina’s 3Q14 and 2Q14 real estate expenses breakdown is available in the following table and indicates the figures used for the calculation of these metrics: Real Estate Expenses
NOI calculation AFFO calculation NOI calculation Non Cash
Repair and Maintenance
EBITDA calculation Non Cash
3Q14
2Q14
(millions of dollars)
Recurring
-‐8.3
-‐9.1
-‐0.6
-‐0.7
Non Recurring
-‐15.1
-‐15.8
-‐1.1
-‐1.3
Property Taxes
-‐7.6
-‐6.7
-‐0.6
-‐0.5
Operating
-‐5.3
-‐6.9
-‐0.4
-‐0.5
Non Operating
-‐2.3
0.2
-‐0.2
0.0
-‐9.7
-‐13.1
-‐0.7
-‐1.0
Electricity
NOI calculation
(millions of pesos)
-‐2.0
NOI calculation
EBITDA calculation
2Q14
-‐1.7
-‐9.0
-‐12.2
-‐0.7
-‐0.9
-‐13.0
-‐10.7
-‐1.0
-‐0.8
-‐3.0
-‐6.2
-‐0.3
-‐0.5
Operating
-‐2.3
-‐5.4
-‐0.2
-‐0.4
Administrative
-‐0.7
-‐0.8
-‐0.1
-‐0.1
Security
-‐3.4
-‐3.6
-‐0.3
-‐0.3
Advertising
-‐0.5
-‐0.5
0.0
0.0
Other Expenses
-‐6.5
-‐5.4
-‐0.5
-‐0.5
Operational Related
-‐3.6
-‐3.4
-‐0.3
-‐0.3
Administrative
-‐2.9
-‐2.0
-‐0.2
-‐0.2
Bad Debt Expense
-‐6.8
2.7
-‐0.5
0.2
Total Real Estate Expenses
-‐83.0
-‐80.6
-‐6.3
-‐6.3
AFFO calculation Brokers Fees
NOI calculation
-‐24.9
Property Management Fees
EBITDA calculation
3Q14
-‐23.4
NOI calculation
NOI calculation
Property Insurance
Source: Pramerica Real Estate Investors -‐ Fund Accounting
24
Appendix 3 – Fees and Administrative Expenses
Fees and administrative expenses include figures used for metric calculations such as Earnings before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO). Terrafina’s 3Q14 and 2Q14 fees and administrative expenses breakdown is available in the following table and indicates the figures used for the calculation of these metrics: Fees and Administrative Expenses
EBITDA calculation External Advisor Fees Legal Fees Recurring EBITDA calculation AFFO calculation
AFFO calculation EBITDA calculation Non Operational related
(million of dollars)
-‐2.0
-‐2.0
-‐3.4
-‐1.1
-‐0.2
-‐0.1
-‐0.6
0.0
0.0
0.0
-‐2.8
-‐1.1
-‐0.2
-‐0.1
-‐4.3
-‐3.6
-‐0.4
-‐0.3
Recurring
-‐3.5
-‐2.5
-‐0.3
-‐0.2
Non Recurring
-‐0.8
-‐1.1
-‐0.1
-‐0.1
Administrative Fees
-‐40.1
-‐8.6
-‐3.1
-‐0.7
-‐7.6
-‐8.6
-‐0.6
-‐0.2
-‐32.5
0.0
-‐2.5
-‐0.1
-‐2.8
-‐2.9
-‐0.2
-‐0.2
-‐1.0
-‐1.6
-‐0.1
-‐0.1
-‐1.7
-‐0.8
-‐0.1
-‐0.1
-‐80.5
-‐44.9
-‐6.1
-‐3.5
Non Recurring
Recurring 1
Non Recurring
Trustee Fees
EBITDA calculation Other Expenses
3Q14 2Q14
-‐26.3
EBITDA calculation Payroll EBITDA calculation
(million of pesos)
-‐27.1
Other Professional Fees EBITDA calculation
2Q14
3Q14
Total Fees and Admin. Expenses
(1) Non operational related administrative fees; 3Q14 expenses related to VAT reimbursement activities
Source: Pramerica Real Estate Investors -‐ Fund Accounting
25
Appendix 4 – Reconciliation
Reconciliation of Net Profit (Loss) to FFO, EBITDA and NOI Net Profit (Loss) Add (deduct) Cost of Financing Adjustment: Non Recurring Borrowing Expenses Add (deduct) Non-‐Cash Adjustment: Acquisition Related Expenses Foreign Exchange Adjustments Fair Value Adjustment on Borrowings Fair Value Adjustment on Derivative Financial Instruments Fair Value Adjustment on Investment Properties Sales of Real Estate Properties Adjustment Add (deduct) Expenses Adjustment: Non Recurring Repair and Maintenance Non Operating Property Taxes Brokers Fees Bad Debt Expense Non Recurring Legal Fees Non Recurring Other Professional Fees Add (deduct) Revenues Adjustment: Accrued Income Other Non-‐Cash Income Reimbursable Tenant Improvements Add (deduct) Non Operational Administrative Fees Non Operational Administrative Fees FFO Add (deduct) Cost of Financing Adjustment: Interest Paid Recurring Borrowing Expenses Interest Income EBITDA Add (deduct) Expenses Adjustment: External Advisor Fees Recurring Legal Fees Recurring Other Professional Fees Administrative Fees Payroll Trustee Fees Other Expenses Advertising Administrative Property insurance Other Administrative Expenses NOI Add (deduct) Expenses Adjustment: Recurring Repair and Maintenance Operating Property Taxes Property Management Fees Electricity Operating Property Insurance Security Other Operational Expenses Add (deduct) Revenues Adjustment: Other Non-‐Cash Income Accrued Income Reimbursable Tenant Improvements Net Revenue
3Q14
2Q14 3Q14 2Q14 (millions of dollars)
(millions of pesos)
-‐117.8 0.0 0.0 100.6 221.0 2.8 27.8 0.0 15.1 2.3 13.0 6.8 2.8 0.8 -‐10.6 -‐22.1 -‐2.5 32.5 272.5 110.9 0.3 -‐5.1 378.5 27.1 0.6 3.5 7.6 2.8 1.0 1.7 0.5 0.7 2.9 427.0 8.3 5.3 9.7 9.0 2.3 3.4 3.6
775.7 0.0 0.0 5.8 -‐241.1 21.6 -‐315.9 0.0 15.8 -‐0.2 10.7 -‐2.7 1.1 1.1 -‐7.9 -‐5.7 -‐2.7 0.0 255.4 103.4 0.5 -‐0.7 358.6 26.3 0.0 2.5 8.6 2.9 1.6 0.8 0.5 0.8 2.0 404.6 9.1 6.9 13.1 12.2 5.4 3.6 3.4
22.1 10.6 2.5 503.9
5.7 7.9 2.7 474.6
-‐9.0 0.0 0.0 7.7 16.9 0.2 2.1 0.0 1.2 0.2 1.0 0.5 0.2 0.1 -‐0.8 -‐1.7 -‐0.2 2.5 20.8 8.5 0.0 -‐0.4 28.9 2.1 0.0 0.3 0.6 0.2 0.1 0.1 0.0 0.1 0.3 32.6 0.6 0.4 0.7 0.7 0.2 0.3 0.3
1.7 0.8 0.2 38.5
59.7 0.0 0.0 0.4 -‐18.5 1.7 -‐24.3 0.0 1.2 0.0 0.8 -‐0.2 0.1 0.1 -‐0.6 -‐0.4 -‐0.2 0.0 19.7 8.0 0.0 -‐0.1 27.6 2.0 0.0 0.2 0.7 0.2 0.1 0.1 0.0 0.1 0.2 31.2 0.7 0.5 1.0 0.9 0.4 0.3 0.3
0.4 0.6 0.2 36.5
26
Reconciliation of Net Profit (Loss) to AFFO Net Profit (Loss) Add (deduct) Cost of Financing Adjustment: Non Recurring Borrowing Expenses Add (deduct) Non-‐Cash Adjustment: Acquisition Related Expenses Foreign Exchange Adjustments Fair Value Adjustment on Borrowings Fair Value Adjustment on Derivative Financial Instruments Fair Value Adjustment on Investment Properties Sales of Real Estate Properties Adjustment Add (deduct) Expenses Adjustment: Non Operating Property Taxes Bad Debt Expense Add (deduct) Revenues Adjustment: Accrued Income Other Non-‐Cash Income Add (deduct) Non Operational Administrative Fees Non Administrative Fees AFFO
3Q14 2Q14 3Q14 2Q14 (millions of pesos) (millions of dollars) -‐117.8 0.0 0.0 100.6 221.0 2.8 27.8 0.0 2.3 6.8 -‐10.6 -‐22.1 32.5 243.3
775.7 0.0 0.0 5.8 -‐241.1 21.6 -‐315.9 0.0 -‐0.2 -‐2.7 -‐7.9 -‐5.7 0.0 219.8
-‐9.0 0.0 0.0 7.7 16.9 0.2 2.1 0.0 0.2 0.5 -‐0.8 -‐1.7 2.5 18.6
59.7 0.0 0.0 0.4 -‐18.5 1.7 -‐24.3 0.0 0.0 -‐0.2 -‐0.6 -‐0.4 0.0 16.9
27
Appendix 5 -‐ Cap Rate Calculation
Terrafina subtracts cash and land reserves book value for the cap rate calculation. In the following table, the cap rate calculation is shown assuming a CBFI quarterly average price of Ps. 29.34 pesos and an average exchange rate for 3Q14 of Ps. 13.1034. Implied Cap Rate
Quarterly Average Price (dollars)¹
2.24
(x) CBFIs (million shares)
602.5
(=) Market Capitalization
1349.0
(+) Total Debt
862.3
(-‐) Cash
479.1
(=) Enterprise Value
1,732.3
(-‐) Landbank
78.6
(=) Implied Operating Real Estate Value
1,653.7
Net Operating Income (NOI) 2014e
125.0
Implied Cap Rate
7.6%
Figures expressed in millions of dollars unless otherwise stated.
(1) 3Q14 average share price of Ps.29.34; 3Q14 average exchange rate of Ps.13.1034
28
Financial Statements 3Q14
Income Statement (thousand pesos)
Rental revenues
Other operating income Real estate operating expenses
$446,244 $431,902
3.3%
57,693
42,631
35.3%
(83,017)
(80,528)
3.1%
(80,531)
(44,804)
79.7%
Acquisition related expenses
-‐
-‐
-‐
Realized gain from disposal of investment properties Net Income (Loss) from Fair Value Adjustment on Borrowings
-‐
-‐
-‐
(220,995)
241,055
-‐
Net gain (loss) from fair value adjustment on investment properties
(27,830)
315,873
-‐
Net (loss) gain unrealized from fair value on derivative financial instruments
(2,772)
(21,565)
-‐
Foreign exchange (loss) gain
(100,573)
(5,753)
-‐
Operating profit
(11,781)
878,811
-‐101.3%
Finance income
5,135
742
592.0%
Finance cost
(111,158) (103,875)
7.0%
Finance cost -‐ net
(106,023) (103,133)
2.8%
(117,804)
775,678
-‐
Net Profit for the period
Var.
Fees and other expenses
2Q14
29
Financial Statements
Balance Sheet
Sep-‐30-‐14
$22,141,159
$21,423,880
(Cost:30/09/2014 -‐ Ps.21,745,250; 30/06/2014 -‐ Ps.21,012,776)
2,809
59,411 138,422 9,598 84,105 41,850
Restricted cash
5,454
Currency translation adjustment Total net assets (Net Equity) Liabilities Non-‐current liabilities Borrowings (Cost: 30/09/2014 -‐ $11,654,730; 30/06/2014 -‐ $11,183,104)
Tenant deposits Current liabilities Trade and other payables Borrowings (Cost: 30/09/2014 -‐ Ps.30,295, 30/06/2014 -‐ Ps.724,454)
11,571,664
218,103 30,030
-‐48.5% 36.7% -‐84.0% -‐39.5% 18.8% 8.7%
-‐22.5%
22,954,005
15,792,371 293,862 922,074 17,008,307
151,936
3.3%
418,497 1440.1%
28,980,040
Net assets attributable to Investors Contributions, net Retained earnings
73,823
6,445,461
Total assets
43,466 863,723 15,858 70,798 38,506
57,225
Cash and cash equivalents
Var.
Assets Non-‐current assets Investment properties
(Net of allowance for doubtful accounts: 30/09/2014 -‐ Ps.44,482; 30/06/2014 -‐ Ps.36,362)
Jun-‐30-‐14
Derivative financial instruments Current assets Other assets Recoverable taxes Prepaid expenses Deferred charges and accrued income Accounts receivable
(thousands of pesos)
9,900,604 631,456
26.3%
59.5% -‐53.5%
478,418
92.7%
11,010,478
54.5%
10,881,157 146,647 188,226 727,497
6.3% 3.6% 15.9% -‐95.9%
Total liabilities (excluding net assets attributable to the Investors)
11,971,733
11,943,527
0.2%
Total net assets and liabilities
28,980,040
22,954,005
26.3%
30
Financial Statements Attributable to Investors
Statement of Changes in Equity
Net contributions
(thousands of pesos)
Balance at January 1, 2014 (Audited) Capital Contribution, Net of Issuing Costs Distributions to Investors Comprehensive Income Net loss of the period Other Comprehensive Income Currency Translation Total Comprehensive (loss) income
Net Assets attributable to investors for the period from January 1 to September 30, 2014 (Unaudited)
Currency translation adjustment
Net assets attributable to Investors
Retained earnings
$9,900,604 $511,856 $246,413 $10,658,873 5,891,767 -‐ -‐ 5,891,767 -‐ -‐ (601,285) (601,285) -‐ -‐ -‐
$15,792,371
-‐ 410,218 410,218 $922,074
648,734 -‐ 648,734 $293,862
648,734 410,218 1,058,953 $17,008,307
Results for the January 01, 2014 to September 30, 2014 period.
31
Financial Statements Cash Flow Statement
Sep-‐14
(thousands of pesos)
Cash flows from operating activities (Loss) profit for the period
$648,734
Adjustments: Net loss (gain) unrealized from fair value adjustment on investment properties
(183,860)
Net loss (gain) unrealized from fair value adjustment on derivative financial instruments
37,407
Net loss (gain) unrealized from fair value adjustment on borrowings
64,400
Realized gain from disposal of investment properties Bad debt expense Differed rents receivable Decrease (increase) in restricted cash Decrease (increase) in accounts receivable Decrease (increase) in recoverable taxes
(703) 26,099 (42,823) (290) 11,128 887,526
(Increase) in prepaid expenses
(1,189)
Decrease (increase) in other assets
17,869
Increase in tenant deposits
3,950
(Decrease) in accounts payable
(191,434)
Net cash (used in) generated from operating activities
1,276,814
Cash flows from investing activities Acquisition of investment properties Improvements of investment properties Dispositions of investment properties Net cash (used in) generated from investing activities Cash flows from financing activities Acquisition of derivative financial instruments Proceeds from borrowings Principal payments on borrowings
(8,101) (188,551) 11,011 (185,641) (275) 0 (771,085)
Distributions to investors
(601,285)
Proceeds from CBFI issued
5,891,767
Net cash (used in) generated from financing activities
4,519,123
Net (decrease) in cash and cash equivalents
5,610,295
Cash and cash equivalents at the beginning of the period Exchange effects on cash and cash equivalents Cash and cash equivalents at the end of the period
728,549 106,617 $6,445,461
Results for the period January 01, 2014 to September 30, 2014.
32
